General Assembly Informal Interactive Dialogue on Commodity Markets

General Assembly Informal Interactive Dialogue on Commodity Markets

Guangzhou Qu, Director, FAO Liaison Office in New York

26/04/2024

1. FAO has supported member countries for over 50 years with its expertise on agricultural trade global issues. With a dedicated Markets and Trade Division, FAO maintains a comprehensive market intelligence service of the main agricultural commodities, provides analytical and policy relevant information, and houses the Secretariats of the Committee on Commodity Problems (CCP), subsidiary Intergovernmental Commodity Groups (IGGs), the Agricultural Market Information System (AMIS), and operates the Global Information and Early Warning System on Food and Agriculture (GIEWS).
2. So how does commodity dependence occur? It occurs when a country's economy relies heavily on the export of one or a few primary commodities, such as agricultural products, minerals or oil.
3. This over-reliance on a narrow range of primary commodities increases the vulnerability of a country to shocks and affects its growth and development, leading to what we refer to as a "commodity dependence trap".
4. Unfortunately, data shows that commodity dependence is more prevalent in developing and particularly lower-income countries.
5. Measuring dependency on the top three commodities, nearly two thirds of developing countries are found to rely on primary commodity exports for more than 50 percent of their export earnings.
6. These countries, for instance, depend on the export of agricultural products like coffee, tea, bananas, cocoa and cotton.
7. As a result, these countries find themselves trapped in a situation of lack of economic growth and underdevelopment.
8. Several consequences arise from falling into this trap. Including:
   1. Economic vulnerability.The economy becomes highly susceptible to price fluctuations in the global market. For instance, if the price of the commodity falls, the country's export revenues and economic stability can be severely impacted.
   2. Limited economic diversification.Because of the dependency, labour, capital and other production resources become concentrated on one or a few commodities. This situation limits the country's ability to develop other economic sectors and hinders its long-term growth and development.
   3. Political and social instability.Exposure to fluctuations in commodity prices for dependent countries can lead to political instability, social unrest, and even conflict, especially when the income generated from commodity exports is significantly affected.
   4. Sustainability challenges.Dependence on the production and export of a few commodities can lead to environmental degradation and depletion of natural resources, which affects the country's capacity to achieve its sustainability objectives.
9. Breaking out of the commodity dependence trap is not an easy task.
10. One important solution to escape this trap is diversification.
11. Diversification reduces countries' vulnerability to commodity price fluctuations, enhances resilience to shocks, stimulates economic growth, improves income distribution, and promotes long-term sustainability.
12. However, to effectively diversify economies and reduce dependency, countries need to scale up investments in infrastructure and education and skills development; implement policies that promote entrepreneurship, innovation and technology adoption; and strengthen institutions and governance mechanisms as well as public-private partnerships.
13. It is also important to underline that diversification requires a comprehensive and coordinated approach combining macroeconomic policies, investment policies and strategies, and institutional reforms to unlock the full potential of a country's economy, beyond its dependency on primary commodities.
14. In agriculture, another important solution is value chain development, which helps to create jobs and generate increased income in the country through value addition.
15. By integrating a value chain development approach into agricultural diversification strategies, countries can achieve more efficient, inclusive, resilient and sustainable agrifood systems, for better production, better nutrition, a better environment and a better life for all, leaving no one behind.
16. In conclusion, the commodity dependence trap represents a significant obstacle to achieving the SDGs and must be addressed urgently. It is important to recognize that commodity-dependent countries cannot do this alone and require support from more advanced economies.